Non Mainstream Pooled Investments including Unregulated
CollectiveInvestment Scheme exemptions and procedures
1. Introduction
This chapter of the Paradigm Compliance Manual deals with Non Mainstream Pooled Investments
(NMPI) including Unregulated Collective Investment Schemes (UCIS). Referred to from now on as
NMPI.
The regulator has focused on this area for some time now and firms will have seen the various “final
notices” being issued to firms where they have fallen foul of the complex requirements surrounding
the promotion of NMPI. In addition to this the regulator carried out consultations in August 2012
“Restrictions on the retail distribution of unregulated collective investment schemes and close
substitutes CP12/19”, followed up with the associated policy statement and final rules in June 2013
(PS13/3) with implementation in Jan 2014. These amended rules can be found on COBS 4.12.
You should read this guide if;

You have written NMPI business and want to check that you have followed the correct
procedures.

You want to start writing NMPI Business or service existing NMPI business.
Within this chapter there are also 6 appendices which should be referred to. These comprise of: Appendix 1 – Certification of High Net WorthClients
Appendix 2 – Certification of Sophisticated Investor Client
Appendix 3 – Self Certified Sophisticated Investors Client
Appendix 4 – NMPI Documentation and Sign OffChecklistto check all procedures have taken place.
Appendix 5– NMPI Due diligence and Promotion checklist in addition to Appendix4
Appendix 6 –NMPI Compliance Financial Promotion Register
2. Background
In the UK, the promotion of an Unregulated Collective Investment Schemes (NMPI) is restricted by
section 238 of FSMA 2000. This provides that an authorised person may not communicate an
invitation or inducement to participate in a collective investment scheme unless the scheme is an
authorised unit trust scheme, a scheme constituted by an authorised open ended investment
company, a recognised scheme, or otherwise falls within an exemption made under section 238 or
239 of FSMA (the CIS Exemption Order) or the exemption rules made by the regulator (COBS 4.12).
So, NMPI may not be promoted to the public by authorised firms unless they fall within one of the
exemptions.
The promotion of NMPI is restricted because the Financial Services and Markets Act 2000 section
238 prohibits promotion of collective investments schemes unless they are:
 Recognised by the regulator and / or
 An authorised Unit trust scheme and or
 An open ended investment company (OEIC)
Section 239 of the Financial Services and Markets Act 2000 grants anexemption for single property
schemes which consists of:
 a single building (or a single building with ancillary buildings) managed by or on behalf of the
operator of the scheme, or
 a group of adjacent or contiguous buildings managed by him or on his behalf as a single
enterprise,
 with or without ancillary land and with or without furniture, fittings or other contents of the
building or buildings in question; and
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
that the units of the participants in the scheme are either dealt in on a recognised investment
exchange or offered on terms such that any agreement for their acquisition is conditional on
their admission to dealings on such an exchange.
The legislation in the Financial Services and Markets Act 2000 has been added and expanded in the
following subsequent legislation:
1. The Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes)
(Exemptions) Order 2001
2. The Financial Services and Markets Act 2000 (Financial Promotion and Promotion of
Collective Investment Schemes) (Miscellaneous Amendments) Order 2005
3. The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005
In January 2014 the change in rules outlined in PS 13/3 have consolidated and changed the contents
of COBS 4.12 tightening the circumstances under which a NMPI can be promoted and to a degree
consolidating the legislation mentioned above.
A NMPI is any of the following investments:
(a)
a unit in an unregulated collective investment scheme;
(b)
a unit in a qualified investor scheme;
(c)
a security issued by a special purpose vehicle, other than anexcluded security;
(d)
a traded life policy investment;
(e)
rights to or interests in investments that are any of (a) to (d).
An additional requirement is that all recommendations must be signed off by compliance and that sign
off must be recorded.
3. Effect of Markets in Financial Instruments Directive (MiFID)
Article 3 of MiFID is an optional exemption adopted by the treasury which means that unless an IFA
carries on specific activities required by MiFID they are exempt.
It is a condition of the ISD and MiFID exemptions that firms carrying on the activity of receiving and
transmitting financial instruments, to which the directive applies, do not transmit orders directly to
operators of unregulated schemes unless they are fund managers to which ISD or MiFID applies(d).
N.B The Investment Services Directive (ISD) was swallowed up my MiFID on 1st Nov 2007
In the regulator’s view, where a financial adviser transmits orders to an authorised broker (or another
authorised firm to which MiFID applies), this should fall within the scope of the exemption.
Unless a financial adviser promotes an unregulated investment from a source, as outlined in
paragraph two above, then the firm will itself become subject to MiFID and falls outside the Article 3
exemption. The firm would then have to apply to the regulator for MiFID status.
PERG 13 Q49 and 50 provides guidance on applying the article 3 MiFID exemption, including a list of
permitted persons to whom orders in relation to units in collective investment undertakings (including
unregulated collective investment schemes) can be transmitted, for the purposes of the exemption.
4. Who can receive promotions?
General note: you are reminded that promotions of NMPI to the general public and/or a firm’s full
client data base are not permitted unless they have individually been proved exempt and suitability for
the client is established prior to promotion.
There are three sets of regulations that govern promotion of NMPI
1. The Financial Services and Markets Act 2000 (Promotion of Collective
Investment Schemes) (Exemptions) Order 2001 (uksi 2001/1060)(this was later
amended by The Financial Services and Markets Act 2000 (Financial
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Promotion and Promotion of Collective Investment Schemes) (Miscellaneous
Amendments) Order 2005) (uksi 2005/270).
These orders are commonly known as the PCIS order and contain 22 exemptions ranging from three
exemptions that the firm will likely use most often:

Article 21 - Certified High Net worth Individuals who are certified by their adviser. The client
and adviser must sign a specific statement to this effect (attached Appendix 1) and
promotions must contain certain formatted warnings – see systems and controls below.

Article 23 - Certified Sophisticated Investors who are certified as such by the adviser The
client and adviser must sign a specific statement to this effect (attached Appendix 2)

Article 23A - Self Certified Sophisticated Investors who are certified by themselves but must
fulfil specific conditions outlined in the certificate and sign a specific statement to this effect
(attached Appendix 3) and promotions must contain certain formatted warnings – see
systems and controls below.

In addition to the three most common exemptions above the order also includes another 19
exemptions including, as an example;
o
o
o
o
Article 22 - High net worth companies
Article 25 - Settlors, Trustees and personal representatives
Article 26 - Beneficiaries of trusts, wills or intestacy
Article 18 - Existing investors in an unregulated scheme
If a firm has any doubt it should refer to Part II and Part III of the Financial Services and
Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001
(uksi 2001/1060).
2. The handbook COBS 4.12 Non Mainstream Pooled Investments with
additional information in PERG 8.20 and various regulatory documents
This is now the primary rule set governing NMPI promotions and supersedes the PCIS orders. This
governs twelve categories of investor who are /can be assessed by the adviser provided they meet
the requirements of the category in which they fall.
The Categories are:
Title of
Exemption
Promotion to:
Promotion of a non-mainstream
pooled investment which is:
1. Replacement
products and
rights issues
A person who already participates in,
owns, holds rights to or interests in, a
non-mainstream pooled investment
that is being liquidated or wound
down or which is undergoing a rights
issue. [See Note 1.]
1. A non-mainstream pooled investment
which is intended by the operator or
manager to absorb or take over the
assets of that non-mainstream pooled
investment, or which is being offered by
the operator or manager of that nonmainstream pooled investment as an
alternative to cash on its liquidation;
or
2. Securities offered by the existing nonmainstream pooled investment as part of
a rights issue.
2. Certified high
net worth
investors
A person who meets the
requirements set out in COBS 4.12.6
R.
Any non-mainstream pooled investment
the firm considers is likely to be suitable
for that client, based on a preliminary
assessment of the client's profile and
objectives.
[See COBS 4.12.5G (2).]
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Title of
Exemption
Promotion to:
Promotion of a non-mainstream
pooled investment which is:
3. Enterprise and
charitable funds
A person who is eligible to participate Any non-mainstream pooled investment
or invest in an arrangement
which is such an arrangement.
constituted under:
(1) the Church Funds Investment
Measure 1958;
(2) section 96 5or 100 of the Charities
Act 2011;
(3) section 25 of the Charities Act
(Northern Ireland) 1964;
(4) the Regulation on European
Venture Capital Funds ('EuVECAs');
or
(5) the Regulation on European
Social Entrepreneurship Funds
('EuSEFs').
4. Eligible
employees
An eligible employee, that is, a
person who is:
(1) an officer;
(2) an employee;
(3) a former officer or employee; or
(4) a member of the immediate family
of any of (1) - (3), of an employer
which is (or is in the same group as)
the firm, or which has accepted
responsibility for the activities of the
firm in carrying out the designated
investment business in question.
5. Members of the A person admitted to membership of
Society of Lloyd's the Society of Lloyd's or any
personby law entitled or bound to
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1. A non-mainstream pooled investment,
the instrument constituting which:
A. restricts the property of the nonmainstream pooled investment, apart
from cash and near cash, to:
(1) (where the employer is a company)
shares in and debentures of the company
or any other connected company; [See
Note 2.]
(2) (in any case), any property, provided
that the non-mainstream pooled
investment takes the form of:
(i) a limited partnership, under the terms
of which the employer (or connected
company) will be the unlimited partner
and the eligible employees will be some
or all of the limited partners; or
(ii) a trust which the firm reasonably
believes not to contain any risk that any
eligible employee may be liable to make
any further payments (other than
charges) for investment transactions
earlier entered into, which the eligible
employee was not aware of at the time he
entered into them; and
B. (in a case falling within A(1) above)
restricts participation in the nonmainstream pooled investment to eligible
employees, the employer and any
connected company.
2. Any non-mainstream pooled
investment, provided that the participation
of eligible employees is to facilitate their
co-investment:
(i) with one or more companies in the
same group as their employer (which may
include the employer); or
(ii) with one or more clients of such a
company.
A scheme in the form of a limited
partnership which is established for the
sole purpose of underwriting insurance
Title of
Exemption
Promotion to:
administer his affairs.
Promotion of a non-mainstream
pooled investment which is:
business at Lloyd's.
6. Exempt
persons
An exempt person (other than a
Any non-mainstream pooled investment.
person exempted only by section 39
of the Act (Exemption of appointed
representatives)) if the financial
promotion relates to a regulated
activity in respect of which the person
is exempt from the general
prohibition.
7. Non-retail
clients
An eligible counterparty or a
professional client.
Any non-mainstream pooled investment
in relation to which the client is
categorised as a professional client or
eligible counterparty.
[See Note 4.]
8. Certified
sophisticated
investors
A person who meets the
requirements set out in COBS 4.12.7
R.
Any non-mainstream pooled investment.
9. Self-certified
sophisticated
investors
A person who meets the
requirements set out in COBS 4.12.8
R.
Any non-mainstream pooled investment
the firm considers is likely to be suitable
for that client, based on a preliminary
assessment of the client's profile and
objectives.
[See COBS 4.12.5G (2)]
10. Solicited
advice
Any person.
Any non-mainstream pooled investment,
provided the communication meets all of
the following requirements:
(a) the communication only amounts to a
financial promotion because it is a
personal recommendation on a nonmainstream pooled investment;
(b) the personal recommendation is made
following a specific request by that client
for advice on the merits of investing in the
non-mainstream pooled investment; and
(c) the client has not previously received
a financial promotion or any other
communication from the firm (or from a
person connected to the firm) which is
intended to influence the client in relation
to that non-mainstream pooled
investment. [See Note 3.]
11. Excluded
communications
Any person.
Any non-mainstream pooled investment,
provided the financial promotion is an
excluded communication.
[See COBS 4.12.12 G and COBS 4.12.13
G.]
Any person.
12. Nonrecognised UCITS
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Any EEA UCITS scheme which is not a
recognised scheme, provided the
following requirements are met:
(1) the firm considers it is likely to be
suitable for that client based on a
preliminary assessment of the client's
profile and objectives; and
Title of
Exemption
Promotion to:
Promotion of a non-mainstream
pooled investment which is:
(2) the firm provides that client with the
same product information as it would be
required to provide by COBS 14.2 if the
scheme was a recognised scheme.
[See COBS 4.12.5G (2).]
13. US persons
A person who is classified as a
United States person for tax
purposes under United States
legislation or who owns a US
qualified retirement plan.
Any investment company registered and
operated in the United States under the
Investment Company Act 1940.
Note: This is only a précis of the regulation if you have a specific case you should check COBS 4.12
for detail.
The firms Compliance officer should approve and record the decision for promoting the NMPI
to the client, indicating the exemption under which they fall and why the specific exemption is
appropriate. COBS 11.2.1.2A
This evidence should be placed on the clients file and a separate record kept. See Appendix 4
and 6
5. Eligibility for Promotion
The firm must be aware of the NMPI restrictions and exemptions, and how to apply them to its
NMPI business. It has to assess its customers’ eligibility for promotion of a particular NMPI,
before it begins its advising process.
It is most likely that the firm will deal with clients mainly in category 2, 8 and 9, and possibly 7 for
professional clients and eligible counterparties.
Under the amended rules a NMPI is deemed fundamentally unsuitable for retail clients and
they may not be promoted this set of products. Any retail client with an existing UCIS may
continue to receive advice on existing investments and whether they should be retained or
sold.
There is also the ability for firms to promote new NMPIs that are intended to replace or absorb
an existing scheme. The marketing restriction simply stops the promotion of further
investment
With regards to product restructuring events, in many cases, communications will not amount
to a promotion to invest further money so will not be subject to the marketing restriction and
may proceed in a similar way as advice on an existing NMPI investment.
However an existing UCIS holder may not be promoted a new UCIS unless they satisfy the
exemptions within COBS 4.12 with effect from Jan 1st 2014.
Preliminaryassessmentrequirement
If the firm wishes to rely on exemptions 2 (certified high net worth investors), 9 (self-certified
sophisticated investors) or 12 (non-recognised UCITS), you should note that these exemptions
require a preliminary assessment of suitability before promotion of the NMPI to clients (in addition to
other requirements).
There is no duty to communicate the preliminary assessment of suitability to the client. If the firm does
so, it must not do so in a way that amounts to making a personal recommendation unless it complies
with the rules in COBS 9 on suitability.
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The requirement for a preliminary assessment of suitability does not extend to a full suitability
assessment, unless advice is being offered in relation to the non-mainstream pooled investment being
promoted, in which case the requirements in COBS 9 apply. However, it requires that the firm take
reasonable steps to acquaint itself with the client's profile and objectives in order to ascertain whether
the non-mainstream pooled investment under contemplation is likely to be suitable for that client.
The firm should not promote the non-mainstream pooled investment to the client if you do not
consider it likely to be suitable for that client following such preliminary assessment.
It is important that the firm, when promoting NMPI, has clear evidence on file that it has taken the
appropriate steps to ensure the client fulfils the criteria for classification and that evidence is recorded
in a manner that is both unequivocal and located in a single place. To that end we recommend a
separate section is utilised in a client file for NMPI classification even if this means some duplication
In addition to ensuring the client fulfils the eligibility criteria for promotion of NMPI the firm should carry
out due diligence on the NMPI and the fund manager to satisfy itself that the promotion and NMPI is
suitable for the client and that all potential risk factors have been considered. Such research should
be put on file.
Example Good Practice
The firm used the exemptions under the Conduct of Business Sourcebook (COBS 4.12) for category
9 persons (Self Certified Sophisticated Investor) for whom the firm has taken reasonable steps to
ensure that investing in a NMPI is suitable.
The firm adequately assessed its customer’s personal and financial circumstances as well as his
knowledge and understanding to ensure the customer is eligible for promoting NMPI.
The firm kept a record of exemption/s which they were relying on when promoting a NMPI, and the
reasons why they apply. The firm provided its customers with written explanations as to why their
personal recommendation was suitable.
Amended from source FSA: Unregulated Collective Investments – Good and Bad Practice report July
2010
We suggest the section should contain details of the following items as a minimum (this list is a guide
and not exhaustive).
Eligibility for promotion:
 Record due diligence on NMPI and the fund manager
 Confirmation of risk factors discovered in due diligence
 Review financial promotion material
 Place due diligence on record with financial promotion material
 Record financial promotion and sign off where appropriate (real time or non real time as
appropriate)
 Record which exemption category applies to the client
 Record evidence of factors which confirm exemption
 Confirm and record date of clients first agreement with firm (to prove existing client)
 For Sophisticated Investors record which of the 4 experience factors apply
 Evidence of income (over £100,000 for HNW). Expenditure and any debts
 Statement of client assets (over £250,000 for HNW)
 Full statement of clients investment knowledge
 Full statement of clients expertise
 Full statement of clients investment experience
 Full statement that the adviser has discussed and the client understands the market risks (list
what they are).
 Full statement from adviser as to why they feel the client is capable of making the investment
decision and on what basis that conclusion is reached
 Evidence of clients attitude to risk and loss
 Sign off by Compliance Officer
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Suitability of promotion:
 Breakdown of existing investment portfolio and confirmation as to why a NMPI would be
suitable within the portfolio and what NMPI investment limit is being recommended as part of
the portfolio and why.
 Record how the NMPI will fit with clients existing portfolio (eg. Asset allocation, type of
market, geographical spread)
 What steps have been taken to ensure NMPI is suitable for the client and how it is more
suitable that any similar regulated investment.
 Confirmation and minutes on discussion held where client was informed and understood that
he would loose certain protections such as access to FOS, FSCS and the FCA.
 Confirmation that the client, prior to certification, has been informed that they can loose
property and other assets from making investment decisions based on financial promotions
 That the client has been advised that if they have any doubt about the investment to which
the invitation or inducement relates they should consult an authorised person specialising in
advising on investments of the kind in question.
 Attach signed certificate if appropriate
 Attach suitability report to which the promotion relates, post advice.
 Attach Compliance approval sign off
Example Good Practice
1. The firm provided full advice based on a comprehensive assessment of the customer’s personal
and financial situation. The firm considered the suitability of the recommended NMPI transaction as
part of the customer’s overall portfolio risk tolerance, his ATR and the need for capital/income.
2. The firm issued a written confirmation and highlighted all the risks, costs and charges pertinent to
their recommended product and its underlying NMPI and clearly explained why NMPI is suitable for
the customer. The firm also explained that NMPI are not regulated, that the customer did not have
cancellation rights, and may not be covered by the FOS should they have a complaint about the fund
or the FSCS should they need to seek compensation
Source FSA: Unregulated Collective Investments – Good and Bad Practice report July 2010
To facilitate this good practice the NMPI Documentation checklist (Appendix 4) should be used to
review each NMPI case to ensure that reasonable steps have been taken to ensure compliance with
the rules surrounding NMPI. The checklist is not exhaustive and should be utilised as a guide.
In addition, in conjunction with the NMPI documentation checklist, the standard Investment File review
document (Appendix 5) should be used when carrying out a general file check.
6. Systems and Controls
Firms should record MI on NMPI recommendations and review their promotion under the firms
Compliance, T & C and management systems to ensure NMPI are promoted and recommended by
firms and ensure the firm:









Record all recommendations which are signed off by Compliance
Records due diligence on NMPI products before promotion
The Adviser is signed off as competent under the Training & Competence scheme to give
suitable advice on NMPI.
There are appropriate monitoring or oversight arrangements to ensure they act in their
customers’ best interest,
The firm only promotes NMPI for which the customers are eligible
Financial promotions are adequately vetted and recorded
ensure portfolios are not “over weight” in NMPI investments (no more than 5-10% of value)
and this is recorded in T & C KPI’s
NMPI is recorded in the new business register and reviewed regularly
As good practice the firm could consider the use of a separate NMPI register
7. Training and Competence
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Where a firm decides to recommend NMPI to clients the firm should ensure that the adviser
promoting the product:












Has checked senior management have signed off the product following due diligence as
suitable for promotion (see “product due diligence” below for more detail)
Has adequate experience and knowledge of the product concerned before they are permitted
to promote to and advise clients.
Knowledge should be evidenced on the advisers T & C file with an appropriate sign off
The adviser has suitable training and permission to understand NMPI as a class of business
o This can be obtained through ed access
o This can be obtained through the Octopus academy
The adviser should record adequate CPD on NMPI products
The adviser should record adequate CPD in respect of NMPI regulation
The adviser should have an annual knowledge test
Advisers must train and be tested on a specific NMPI product before being permitted to
promote and advise on it.
The adviser must be aware of the specific risks which pertain to specific NMPI
The adviser must be aware of oral disclosure requirements where required
The adviser must understand and follow the process for Compliance sign off of
recommendations prior to presentation to the firm’s client
Consider T & C KPI to monitor and ensure portfolios are not “over weight” in NMPI
investments (guide - no more than 5-10% of portfolio value)
8. Product due diligence
Because of the increased risk in recommending an unregulated product the firm should ensure that
they carry out and record adequate due diligence on each product in order to protect the firm and the
client for undue risk.
Such due diligence could comprise but are not limited to the following:

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

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









Regulatory status of sponsor/ fund (article 3 exempt firm may need to be MiFID to promote
scheme, see section on MiFID)
Schemes geographical source and registration
Any FCA registration or reciprocal agreement with registering authority
Firms permission suitable
Fund manager experience and record
Promoter/ sponsor record
Product/ provider risks
Features
Conditions
Financial strength
Underlying investments
Liquidity/ saleability of product
Investment structure
Investment risk
Lock ins
Gearing
Governing law
Taxation of investment
Whether product requires review to mitigate risk and excess asset class exposure
Senior management sign off
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9. Firms understanding of financial promotions and NMPI
After due diligence and before promoting the NMPI the firm should review the financial promotion and
ensure that it is appropriate for the target market and that it will not be promoted to ineligible
customers. Further details on financial promotions can be found in the online Paradigm Compliance
Manual.
Many firms do not understand the meaning of a ‘financial promotion’ in respect of NMPI. Examples: 
The firm believes it does not promote NMPI to its customers as it does not issue paper-based
material (e.g. adverts in newspapers, brochures, flyers, direct offer letters), but only advises
on NMPI and provides its customers with NMPI information memorandum and/or other
literature which is designed by the NMPI promoter or fund manager.

Firm introduces a particular NMPI to its customers when presenting on investments in that
NMPI (as part of the firms’ sales process). The firm does not consider verbal communication
(e.g. face-to-face discussion, phone calls etc.) as financial promotion.

Before giving advice on a particular NMPI, the firm provides its customers with NMPI
information memorandum and/or other literature which is designed by the NMPI fund
manager. The firm does not consider this a ‘financial promotion’.

Firm advertises a particular NMPI in the press and via its website, which are accessible to
retail clients and the general public.

Firm promotes a particular NMPI via its own direct-mail before assessing the customers’
eligibility for the promotion of NMPI.

Firm invites customers to its road shows/seminars, where the firm refers to a particular NMPI,
before assessing whether the customer is eligible for the promotion of NMPI.

Appropriate warnings are not given to clients as required if they are High net worth
individuals, certifiedor Self certified investors
10. Communicating UCIS promotions to Certified High Net worth
individuals and Self CertifiedSophisticated Investors
In addition to certifying high net worth and self certified clients, a firm that promotes a UCIS to either
type of client must ensure that they provide their clients with an additional warning as outlined below.
The warnings must be given in the prescribed manner.
Each class of Investor must also sign the appropriate High Net Worth, Certified and Self
Certified certification outlined in COBS 4.12.6, 7 and 8. See the Appendices to this guidance.
Certified High NetWorth clients
In accordance with The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005
Article 48 “Certified high net worth individual” means an individual who has signed, within the period of twelve
months ending with the day on which the communication is made, a prescribed statement to that
effect in the prescribed manner.
(1) The communication must be accompanied by the giving of a warning in accordance with
paragraphs (2) and (3) or, where because of the nature of the communication this is not reasonably
practicable,—
(a) a warning in accordance with paragraph (2) is given to the recipient orally at the beginning of the
communication together with an indication that he will receive the warning in legible form and that,
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before receipt of that warning, he should consider carefully any decision to participate in a collective
investment scheme to which the communication relates; and
(b)a warning in accordance with paragraphs (2) and (3) (d) to (h) is sent to the recipient of the
communication within two business days of the day on which the communication is made.
(2) The warning must be in the following terms—
“The content of this promotion has not been approved by an authorised person within the
meaning of the Financial Services and Markets Act 2000. Reliance on this promotion for the
purpose of engaging in any investment activity may expose an individual to a significant risk
of losing all of the property or other assets invested.”.
But, where a warning is sent pursuant to paragraph (1)(b), for the words “this promotion” in both
places where they occur there must be substituted wording which clearly identifies the promotion
which is the subject of the warning.
(3) The warning must—
a)
b)
c)
d)
e)
f)
g)
h)
be given at the beginning of the communication;
precede any other written or pictorial matter;
be in a font size consistent with the text forming the remainder of the communication;
be indelible;
be legible;
be printed in black, bold type;
be surrounded by a black border which does not interfere with the text of the warning; and
not be hidden, obscured or interrupted by any other written or pictorial matter.
(4) The requirements of this paragraph are that the communication is accompanied by an indication—
a) that it is exempt from the restriction on the promotion of unregulated schemes (in section 238 of
the Act) on the grounds that the communication is made to a certified high net worth individual;
b) of the requirements that must be met for an individual to qualify as a certified high net worth
individual;
c) that any individual who is in any doubt about the units to which the communication relates should
consult an authorised person specialising in advising in participation in unregulated schemes.
Self-CertifiedSophisticated Investors
In accordance with The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005
Article 50A “Self-certified sophisticated investor” means an individual who has signed, within the period of twelve
months ending with the day on which the communication is made, a statement to that effect in the
prescribed manner.
The conditions above for High Nett Worth investors above apply except:
a) For paragraph 4(b) replace High Net Worth with Self Certified Sophisticated Investor
b) The warning must be in the following terms: “The content of this promotion has not been approved by an authorised person within
the meaning of the Financial Services and Markets Act 2000. Reliance on this
promotion for the purpose of engaging in any investment activity may expose an
individual to a significant risk of losing all of the property or other assets invested.”.
But where a warning is sent pursuant to paragraph (1)(b), for the words “this promotion” in both
places where they occur there must be substituted wording which clearly identifies the promotion
which is the subject of the warning.
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Sophisticated Investors certified by adviser
The above prescription does not apply – advice process and adviser certification applies.
In accordance with The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005
Article 50 “Certified sophisticated investor”, in relation to any description of investment, means a person—
(a)who has a current certificate in writing or other legible form signed by an authorised person
to the effect that he is sufficiently knowledgeable to understand the risks associated with that
description of investment; and.
(b)who has signed, within the period of twelve months ending with the day on which the
communication is made, a statement in the following terms:
“I make this statement so that I am able to receive promotions which are exempt from the
restrictions on financial promotion in the Financial Services and Markets Act 2000. The
exemption relates to certified sophisticated investors and I declare that I qualify as such in
relation to investments of the following kind [list them]. I accept that the contents of
promotions and other material that I receive may not have been approved by an authorised
person and that their content may not therefore be subject to controls which would apply if the
promotion were made or approved by an authorised person. I am aware that it is open to me to
seek advice from someone who specialises in advising on this kind of investment.”..
Note: A retail client whose investment experience is limited to mainstream investments such as
securities issued by listed companies, life policies or units in regulated collective investment schemes
(other than qualified investor schemes) is generally unlikely to possess the requisite knowledge to
adequately understand the risks associated with investing in non-mainstream pooled investments.
In exceptional circumstances, however, the retail client may have acquired the requisite knowledge
through means other than his own investment experience, for example, if the retail client is a
professional of several years' experience with the design, operation or marketing of complex
investments such as options, futures, contracts for differences or non-mainstream pooled
investments.
Example Good Practice
1. The firm carried ongoing due diligence on the recommended NMPI, its underlying investments and
its fund manager. As a result, the firm made timely decision to take its customers out of some NMPI
before the scheme experienced liquidity difficulties. The firm kept sufficient records of their due
diligence.
2. The firm asked NMPI fund manager for, and obtained additional information and clarification on
their NMPI, as well as training to its senior advisers to help them to understand the product
adequately.
Source FSA: Unregulated Collective Investments – Good and Bad Practice report July 2010
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11. Complaints
Complaints should be dealt with in accordance with the firm’s complaints procedure. It should be
noted that where clients may not have access to FOS they can still bring an action under S150 of the
FSMA.
12. Key points

Whilst existing UCIS Investment holdersholdings can be reviewed you may only offer;
o A non-mainstream pooled investment which is intended by the operator or manager
to absorb or take over the assets of that non-mainstream pooled investment, or which
is being offered by the operator or manager of that non-mainstream pooled
investment as an alternative to cash on its liquidationor;
o
Securities offered by the existing non-mainstream pooled investment as part of a
rights issue.
SEE COBS 4.12.4 section 1
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You may not promote a NMPI to a retail client unless they are a high net worth client, a
Certified Sophisticated Investor or a Self-Certified SophisticatedInvestor.
You must carry out and record a preliminary assessment of a client’s suitability for a NMPI
before you approach them with the promotion. The client does not need to receive the
preliminary assessment but if they do it must either be clear it is not a personal
recommendation or be in the format of a suitability report.
The preliminary assessment must contain an assessment of the clientsknowledge,
experience and expertise.
Notwithstanding the certification of the client, you must consider whether the client will
understand the product being promoted and if it is their best interests.
Any NMPI promotion or recommendation must be approved by the firms CF10 (Person
responsible for Compliance Oversight) or a member of Compliance staff appointed by the
CF10. COBS 4.11.1. 2A. Complete NMPI Compliance register
Whilst not in the rules we recommend that NMPI only forms between 5-10% of the client’s
portfolio
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